A key question in developmental biology is how cells exchange positional information for proper patterning during organ development. In plant roots the radial tissue organization is highly conserved with a central vascular cylinder in which two water conducting cell types, protoxylem and metaxylem, are patterned centripetally. We show that this patterning occurs through crosstalk between the vascular cylinder and the surrounding endodermis mediated by cell-to-cell movement of a transcription factor in one direction and microRNAs in the other. SHORT ROOT, produced in the vascular cylinder, moves into the endodermis to activate SCARECROW. Together these transcription factors activate MIR165a and MIR166b. Endodermally produced microRNA165/6 then acts to degrade its target mRNAs encoding class III homeodomain-leucine zipper transcription factors in the endodermis and stele periphery. The resulting differential distribution of target mRNA in the vascular cylinder determines xylem cell types in a dosage-dependent manner.